Post date: 28/08/2018 10:00
A typically slow week of late summer trading was dominated by political noise from the White House. Trump’s complaints about Fed policy tightening knocked back US rates as well as the US dollar. Rising risk appetite among investors didn’t help the greenback, which ended down against every other G10 currency save the Japanese Yen, which was also pressured by the flight away from risk havens.
This week looks similarly thin on the news front. Eurozone flash inflation out Friday is probably the most meaningful release. We will be closely following it for any signs that inflation in Europe is finally trending up towards the ECB target.
GBP
A mixed week for Sterling, which joined in the general G10 rally against he dollar but failed to keep up with the Euro. News surrounding Brexit negotiations have yet to take a positive turn. The UK Government implicitly admitted that the October deadline for an agreement was no longer tenable, and released further details of preparations for a no-deal outcome.
EUR
The common currency put in the best performance of any G10 currency last week. The PMI indices of business activity were solidly above 54, and German GDP growth came out at a reasonably strong 0.5% for the quarter. All eyes are now on this week’s inflation data out Friday. We think that a meaningful euro rally from current levels will have to wait until we have a clear timeline for ECB hikes, and this in turn will depend on core inflation data showing a clear trend upwards that has been elusive so far.
USD
In addition to Trump’s comments on Federal Reserve policy, news that his former lawyer was cooperating with investigators and that his former campaign manager had been convicted of fraud and tax evasion seemed to rattle the US dollar. Fed Chair Powell reiterated his gradualist line on further interest rate hikes. The net of it was a rough week for the US dollar, which brought the Euro close to the 1.17 level.
We do not expect sharp swings in the dollar from current levels until the path towards higher interest rate levels in the rest of the developed world is clarified by the respective central banks.
